What is Shadow Accounting in Sales?
Shadow accounting is when sales reps make their own commission calculations, in order to spot errors the company makes on their commission payouts. It can be very distracting for sales reps, even when there are simple commission structures. It’s typically a feature of companies that do manual commission calculations, or that do not give reps regular visibility into earnings. Shadow accounting is extremely common. According to one estimate, 63% of reps’ time is spent on non-sales activities such as shadow accounting.
What Does Shadow Accounting Actually Cost?
Shadow accounting is a constant distraction from selling and creates overhead for sales, finance, sales ops, and even HR teams when there are errors. Errors erode trust, and over time they can lead to a culture where mistakes are commonplace and accepted, and where teams are suspicious of one another. If there are errors on earnings, it opens the door for errors in other areas as well.
Looking just at how much time reps spend on shadow accounting, we can do a simple calculation to see how much it costs companies each year.
According to Indeed, the average sales rep makes about $68,000 per year. If we convert this to an hourly rate, it comes out to $32.69 per hour. At some companies, shadow accounting can be a daily occurrence. Even if we are more conservative, and assume it happens weekly, we end up with at least a couple of hours per week that reps spend updating their own spreadsheets, doing their own calculations, and cross checking this with any other commission related data they may have from the company. 2 hours per week at a cost of $32.69 ends up costing $3,269 per year, per sales rep.
For a team of 20 sales reps, shadow accounting conservatively costs over $65K.
For a team of 100 sales reps, it can cost over $325K.
Are Reps at Your Company Shadow Accounting?
Here are some signs to look out for:
- Your reps get a commission number once a month, or even less often
- Your reps remember signing their commission agreement when they started working for the company, but have no idea how their commissions actually line up to that
- Your sales and finance teams spend time at the end of every quarter settling commission errors
- Your finance team has regular discrepancies between commission accruals and commission payouts which they can’t explain
We hate to be the ones to break it to you, but if any of these are true, your company might benefit from automating commissions. Get in touch with us to learn how we can help eliminate the need for shadow accounting and help your reps get back to selling.